The Distribution Of Income & Wealth: Poverty & Inequality Flashcards
What is income?
Personal or household income is the flow of money a person or household receives in a particular time period
What is wealth?
Personal wealth is the stock of everything that a person/household owns at a particular point in time which has value, minus debts
The distribution of wealth in the UK?
Wealth in the UK is distributed very unevenly. The combined wealth of the least wealthy 50% of households was equal to the wealth held by the top 1% as of 2022
The distribution of income in the UK?
The distribution of income is very uneven
The top 20% of earners received 13x more than the poorest 20% before tax. Those was reduced to 4x larger after benefits. 2022
What is the gini coefficient in the UK
0.35 before housing costs
Factors influencing the distribution of income and wealth?
- Wage & salary differentials
- Assets (create capital gains)
- Human capital
- Access to education
- Gov policies (benefits, tax)
- Globalisation
- Trade unions
- Privatisation
What is equality?
When everyone is treated the same
What is equity?
When everyone is treated fairly
Equity and equality in terms of incomes?
Equity is normative, equality is positive. Some argue it wouldn’t be equitable for people to receive equal salaries despite varying levels of effort and contributions to society.
What is the Lorenz curve?
The cumulative % of total national income/ wealth plotted against the cumulative percentage of population.
The extent to which the curve dips below a straight 45 diagonal line indicates the degree of inequality of distribution
What is the gini coefficient?
A measure of the extent to which the distribution of income or wealth among individuals or households deviates from a perfectly equal distribution. 0 is complete equality, 1 is complete inequality
What are the cost of unequal distribution of income and wealth?
- Disincentive for workers & productivity
- Decreased standard of living
- Social instability e.g political instability and social unrest
What are the benefits of unequal distribution of income and wealth?
- Labour allocated efficiency (signals jobs are in demand, high wage attracts workers reducing skills shortages)
- Trickle down effect, +income —> investment in capital —> + productivity & jobs etc
-Reward for innovation and risk taking - Can fund business expansion/creation making jobs
What is absolute poverty?
Characterised by severe deprivation of basic human needs. Based on income and access to services.
What is relative poverty?
Occurs when income is below a specific end proportion of average income, usually 50/60% of median income.
What are relative poverty levels in the UK?
As of 2024 17% of people in the UK were in relative poverty before housing costs, it was 21% once housing costs were accounted for.
What are causes of poverty?
- Old age (relying on state pensions> private which hasn’t risen enough to reach todays standards of living since the 1980s)
- Low productivity = low wages
- Low wages (informal employment, lack of skills, primary sectors)
- Unemployment (low benefits)
- Education (skill level)
- Healthcare (wellness correlates with productivity)
- Regressive tax
What is the poverty cycle?
Growth wise:
- Low wages —> low savings —> low investment —> low EG
Development:
Low wages —> low education & healthcare (costs £) —> low levels of human capital —> low productivity
What are the effects of poverty?
- Educational deprivation
- Health deprivation
- Bad housing
- Lower productivity
What policies can be used to influence the distribution of wealth and alleviate poverty?
- +marginal tax rates on income and wealth
- statuatory minimum wage
- relative level of cash welfare benefits
- employment through subsidies
- subsidies energy bills, tuition, childcare
- tackle discrimination in the labour market
- universal basic income
- rent controls to tackle unaffordable housing
Use of benefits in the UK
52% of people in the UK receive more in welfare benefits than they pay in tax 2022
What is median monthly rent in the UK?
Advantages of rent controls?
- Makes renting more affordable for lower incomes, improves mobility
- Releases money to be spent on other goods& services & saving
Disadvantages of rent controls?
